Lazy Man and Money

Buying a Home? You May Need a $100,000 Salary.

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Today, I’m picking some low-lying fruit of the “newsy” variety. It comes straight from the top of my email inbox courtesy of Zillow’s Media Room.

I know the title gave it away. (I’m terrible with clickbait.) Zillow’s research found More Than a Third of Home Buyers Now Make More Than $100,000.

Before we break apart that title, let’s do a little commonsense math check. That means that nearly two thirds of home buyers make less than $100,000. You still have a better than average chance of buying a home if you make less than $100,000.

When I first read the article, I was thinking that it was a comparison of haves (home owners) and have-nots (renters). However, it’s really three groups: The getting (home buyers), the haves (already home owners, and the have-nots (renters). Usually the home buyers and home owners make similar household incomes, but lately it’s changed so that home buyers actually make a little more… an average of ~$80,000 vs. an average of $75,000.

The press release does a little analysis, but it’s a little confusing. It seems that maybe first time home buyers need to make a little more a year so that they can save a little more for a down payment. In other words, there’s nothing too surprising.

The renter income numbers were a little more interesting to look at. The average household income there was $38,300 or about half of the home buyers/home owners. Zillow points out that young and single people are more likely to rent (makes complete sense). Who would have guessed that a single person with one income might choose to rent, but change his/her mind if they pair up with a partner creating a second income? (That’s sarcasm.)

I think I takeaway two things from the article:

  1. A rule of thumb to buying a home might be to have a household income of around $75K-80K.
  2. As with all rules of thumb, the individual situation matters greatly. In this case, Zillow breaks down the numbers for some of the largest metros.

That second point is most likely the most useful information in this report. In Pittsburgh and Tampa, buyers are getting in ~$65,000. In New York or Boston, buyers are getting in at ~$120K. You can use the chart to see what your area average is. Of course few people buy an exactly average home, but at least it’s at least a number you use.

If you are an investor, you can even crunch the numbers a different way. It didn’t take me long to notice that Tampa’s earners are one of the lowest, but it’s renter earns nearly the national average. The renter makes 57% as much of the buyer. Maybe it makes to buy a property in Tampa and rent it out? They’ll likely be able to pay their bills since it supports a higher rent.

On the other end of the spectrum, Philadelphia’s first time buyers earn $98,000 (well above average) and the renters earn a below average $35,300. Their renters are making as much money as even Tampa and it looks like a tougher market to buy into in the first place. Spending more on an investment property if renters aren’t likely to pay as much doesn’t seem like a smart plan.

Zillow’s chart made it extremely to put in a spreadsheet and pull out these numbers. It was literally almost a full 60 seconds. Since it was so easy, I’ll leave it as an exercise for the reader (it’ll take me longer to upload it).

So what do you think? Did you find anything useful or interesting in this data? Let me know in the comments.

A Great 14-Year Old Entrepreneur

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Yesterday J. Money from Budgets Are Sexy passed along a great video clip on Facebook. Ellen DeGeneres had a 14-year old young lady, Willow Tufano, on her show who bought a house. Turns out that the clip is nearly 18-months old, but it’s still a great story. Here it is:

If you don’t have time to watch the video here’s the short story. This girl (feels like I should call her a woman, right?) made $6,000 by buying and selling stuff on Craigslist. Some of the stuff she got for free as trash that others were throwing away. She found a $100,000 house that was a short sale for $16,000. She negotiated that down to $12,000 and went in as 50-50 business partners with her mother to buy it outright. She fixed it up and now rents it out at $700/mo…. or $8,400 a year. That’s enough to buy out her mother’s share in a year.

I get the feeling that some of you will be nit-picky, so I will too. Obviously, the deal on the house is incredible. It’s unheard of to get a deal that’s 16 cents on the dollar… and it takes some stones to try to negotiate that down to 12. It helps that it is in Florida that was perhaps hit hardest by the housing market crash. Outside of Detroit, I don’t know if there are many places where this can be pulled off. Secondly, I don’t what money she used to fix up the house. It looked like it received a new kitchen and the exterior was painted. Third, one could make a valid argument that she only bought half a house and that her mother bought the other half.

I’m not going to focus on any of that though. Let’s focus on the fact that this girl found a way to make a decent (mostly) passive income in a tough economy. She owns a piece of real estate outright, without a mortgage, which is something that I haven’t been able to do at 37. (Of course I’m a big fan of mortgages due to the really low interest rates.) Her income in 18 months is going to be more than what she paid for the house.

There’s something that Ellen did in the video that I think many people might miss. First she gave the girl a new dryer, which is something she needed for the house. That’s nice of her, but it’s nothing special for these type of shows. However, the $10,000 gift card from Ace Hardware is worth noting. It wasn’t just a gift of cash that she could go spend at the mall (not that I think this girl would). It was something that a landlord would find very helpful, which is something that encourages her do this again. Ellen even worked in the Ace Hardware slogan, so they got their $10,000 worth in advertisement (and maybe a couple of dollars worth of me mentioning it here). In a world of DVR and skipping over commercials, this product placement-type advertisement is smart indeed. It all adds up to a nice win-win-win, for the girl, the Ellen show, and Ace Hardware.

Update: It looks like Willow did buy a second home just a few months after this aired. And she’s now looking into a reality show. You can see the trailer for it here.

You may remember me writing about Abigail Martin and her $500 wedding. At the time I called her my hero. Today, I add Willow Tufano to that list. A few more of these stories and I’ll have to come up with a Lazy Man Hall of Fame of Amazing People.

We Bought a House!

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Okay, that title is a little misleading. We have a signed purchase and sale agreement on a home. I wrote at far too much length in a multi-part series at: Buying a Vacation/Retirement Home (Part 1 of ?).

The process for looking in a home in a historic place like Newport, RI (and surrounding towns) brought us to look at probably over three dozen homes. It was a polarizing experience for us. My analytical side was looking for value in terms of objectively measurable numbers like price per square foot. My wife was looking for the, “Can I see myself waking up and having a cup of coffee each morning?” value. I think we both recognized that each side has its merits. In fact, I’d lean towards her side being more important, but I wanted to stand my ground on getting a good value. After all, with an unlimited budget there are many great places to wake up and have a cup of coffee.

On this trip, we found a three places that fit both of our objectives. This is a big change from the one that stood out last time. (I’m not going to count another house that stretched our budget too far, but still a good “value” in terms of price per square foot and aesthetics). We felt like we were on an episode of House Hunters.

  • One was really close to the beach, 5-10 walk, but the floor plan wasn’t what we were hoping for. It wasn’t in “show” condition as the current renters were there in the midst of the chaos of dealing with 3 small children. It would have needed a little work including some new kitchen appliances. In addition it stretched our budget quite a bit.
  • Another was a 15 minute drive to the beach. It also was in a bit of chaos at the time of the showing. The kitchen as new, but other parts of the house needed some work. The price was favorable – due in part to the condition and the location of course.
  • The last place was about a 5 minute drive to the beach. It was a little smaller (300 square feet) than the above two. However, it needed the least amount of work. In fact, we really couldn’t see doing much to it at all. We would prefer a bathroom to have a different color vanity and a larger deck. It would be nice if there was already a fence in place for our dog. Everything else looked like it had been done in the last 3-4 years. It’s asking price was a little higher than the average of the previous two.

I’m betting from that description you can guess which one we went for. It was the third one. While the first one seemed to have the best location, we believed the third place was really the best. It would have been great to walk to the best, but when we looked at other factors like distances to shopping and schools and the neighborhood itself, it passed the first in terms of location.

We eliminated the second house due to the distance from the beach. My wife brought up the scenario of dropping hypothetical kids (since we have no real kids) off and picking them at the beach. That would be a half hour trip there and back… and then another half hour trip. It would be an hour out of your day. That might not be the most common scenario, but it was a good the point in my mind. With the third house, such a scenario is 20 minutes (4 trips of 5 minutes each). Plus hypothetical kids could bike to the beach when they are old enough.

Finally the third house, the one we agreed to had the most amount of land. My wife was on the deck while I walked out and she said, “You are getting too small, I can’t see you.” It was clearly exaggeration on her part, her point was again quite valid. This was a huge selling point.

The last obstacle was to agree on a price. The asking price was already pretty good and it hadn’t been on the market long. When considering the condition of the home, we didn’t feel like we comfortable going too low. We went the lowest we thought we could, while trying to make a strong offer with the other terms of the agreement. It turned out it worked. Their counter was lower than we anticipated. This put in position to try to recounter with our dream price, but we decided to go a little up from there and hope they take it. At that point, the difference was only going to be about 1% of the house’s price anyway. They accepted our counter offer.

Now it’s time to get a home inspection and a mortgage. I don’t anticipate either to be as much fun as the house hunting was (though the inspection should go well.)